In cases where supply power is high, the second basic strategy is to change the nature of the demand. High supply power exists in cases whenever a supplier succeeds in establishing a monopolistic or oligopolistic position thanks to a unique technical advantage or exclusive market access. Quite often, a market constellation of this kind is not inevitable but is in fact brought about, either knowingly or unknowingly, by the buying company itself. Changing the nature of demand requires sounding out the limits - i.e. determining to what extent technical specifications can be modified so as to regain freedom of choice. Experience has taught that nearly all monopolies can be circumvented. The remaining residual risk can then be managed through the use of appropriate measures.

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Seek joint advantage with supplier

Where there is both high supply power and high demand power, the fourth basic strategy aims at searching jointly with the supplier for advantages. The different variants of this basic strategy depend on the scope and intensity of the partnership. The scope can range from coordinated demand and capacity planning to complete intermeshing of the value chain. Meanwhile, the intensity can range from project based sharing of costs to the sharing of financial success and risk.

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Manage spend

In the case of low supply and demand power, the first basic strategy involves professional steering of demand. Manage spend first of all requires detailed knowledge of who is buying what from which supplier. Based on this, one can then consider the possibility of offsetting low demand power by bundling demand, either within the company or across company boundaries. These considerations should be backed by an uncompromising analysis of whether the demand in question is actually justified. The approaches for cutting costs and adding value within this basic strategy are demand management, co-sourcing, volume bundling and commercial data mining.

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Leverage competition among suppliers

Where high demand power exists, the third basic strategy is to leverage competition among suppliers to the advantage of the company. Variations of this basic strategy are further fueling competition through appropriate measures on the supplier market, or influencing supplier pricing through analytical tools.

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Supply power is driven by the following parameters:

How many credible suppliers are there?

What's the structure of market shares?

What is the merger and acquisition dynamics in the industry?

How easily can the market be entered by new companies?

How easily can suppliers be switched?

Are there substitutes and how easily are they available?

What about general availability of products?

Demand power is driven by the following parameters:

What is the market share in the relevant supply market in the relevant region?

What growth perspective can the company offer to its suppliers?

What opportunites for learning and knowledge increase does the company offer to suppliers?

What brand effect and image increase can the company offer to suppliers based on the cooperation?